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Annuity Exchanges, Full or Partial, Boost Flexibility without Creating Taxes

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22.10.2019

Cashing in an annuity usually produces taxable income. Additionally, if you surrender your annuity before the contract term is up, often there’s a surrender charge.

But you aren’t stuck for years if you have a low-paying annuity or even a type of annuity, such as a variable annuity, that no longer meets your needs. You can make a tax-free 1035 annuity exchange. You can trade in an entire annuity or part of it for a better annuity at a different insurance company.

A 1035 exchange lets you switch companies while continuing to defer taxes, ensuring that your annuity stays up-to-date with the latest advantages, benefits and best rates available.

It’s one of the few parts of the tax code that work in your favor. Accumulated interest earnings from your original policy remain tax-deferred until you withdraw the funds from your new annuity sometime in the future. In contrast, surrendering an annuity is a taxable event and you must recognize any gain as current income.

A full 1035 exchange most often involves exchanging one........

© Kiplinger